The only time I can remember ever using a rent-to-own store was as a young kid and VHS had just come out. My dad wanted to try out a player to see if they were worth all the “hype”. So we tested it for one out for a week and got to watch movies at home – which at the time – was quite a novelty.
We returned the VHS player to the Rent-A-Center (though I recall my dad was kinda perturbed at the rate they charged him) and a year or two later soon bought our first scratch-n-dent VHS player (my dad was big on scratch-n-dent anything). We were finally living the dream. :)
Just recently, I saw a TV commercial for Rent-A-Center and thought, “this place is still in business?” People are actually using this service?
This got me to wondering: Is there ever a reason to go the rent-to-own route? Here's the only reasons I could think of:
- You want to try out a product you've been thinking of purchasing (kinda like my dad did)
- You don't have the cash upfront to purchase
- You aren't credit-worthy (or don't have credit)
- You've just been displaced from your home and need certain appliances to get by for a period of time
- You enjoy paying more for things
Why the rent-to-own option is rarely (if ever) a good idea
While that last point for renting-to-own is a bit tongue-and-cheek, it's not at all far from the truth. According to a 2011 Consumer Reports article, you can expect to pay considerably more – oftentimes 3x the price of an item if you finish out a rental agreement.
As an example, the article describes a $612 Toshiba laptop found at one rent-to-own store:
It was being offered for $38.99 a week for 48 weeks, for a total of $1,872, excluding sales tax and other charges. That's the same as buying the laptop at the manufacturer's suggested retail price and financing it at an interest rate of 311 percent. You could buy three of the laptops outright for that $1,872.
“I think that the rent-to-own model generally is a remarkably expensive way to obtain what you need,” said Jim Sugarman, a Washington State assistant attorney general in the consumer-protection division. “There is usually a better way to obtain what you want if you do a little planning and have a little patience.”
Consumer Reports also warned readers the purchase price on items at rent-to-own stores is often higher than in other stores.
Have you ever gone the rent-to-own route?
I sometimes think that getting a mortgage on a home is a rent-to-own racket. I mean, if you consider all the interest you pay on the house before paying er off – it's often twice the purchase price (yowser!).
We do this with other stuff too – though to lesser and varying degrees. Car loans, not paying off balances on our credit-cards, etc. I think we've all been guilty of unknowingly participating in the rent-to-own scheme.
I'm interested to know if you've ever had any experience with renting-to-own. Was it a positive experience? Negative? Lessons learned?
I’ve recently signed up for a program like this through Sears. If you’re not approved for their credit card (which I wasn’t), then they offer you a lease-to-own for large appliances, mattresses, furniture, etc. I’m a young adult still, and as any young adult is probably doing, I’m still paying for the mistakes I made when I turned 18 and got all my ‘pre-approved’ credit cards. So, even though I am going to be paying more for the mattress I got, my credit score will improve because of it, which, in the end, is okay with me, because ultimately, my credit is what will get me a house, a car, or loans in the future.
I can tell you unequivocally that rent to own, lease option, house purchasing is a great opportunity for home ownership and or very lucrative as a money maker. Minimal closing costs, low down payment and no financial checks and penalties. There can even be additional savings options concerning insurance and property taxes. It’s a win win. As with any investment you have to shop smart.
Aaron, I’ve never been a fan of rent-to-own, for the reasons you stated, but I never before thought about a mortgage being a rent-to-own copycat – you are so right!!!! What a ripoff. What are we as consumers thinking? This makes me all the more eager for us to kick our mortgage to the curb – thank you!
Thanks for everyone’s comments and input!
I have never went the rent-to-own route but I guess they help people out who need instant gratification. Logic would tell most that if you don’t have the money or the credit to get a laptop through normal means, it probably means you won’t be able to make your payments. I would just wait until you are able to afford a used version of the electronic item you want and save a bundle.
We have a service here in South Africa that you can rent to own appliances and even solar pv systems. On the plus they cover all repairs and pick up and delivery, and have upgrade options when the term is completed. But yes you do end up paying a lot more. So it is good if you are happy to pay a premium for risk free, hassle free use. For example if you have a furnished flat that you rent out.
I concur 100% with you here. Rent to own is a terrible idea financially! It boils down to this, its a form of debt and even though you walk out with the item and start enjoying it immediately but you are sorta charged the buying price plus a charge for enjoying the item immediately when you still don’t fully own it. In the end you end up paying way more! It becomes even worse if it breaks, even more charges…
Lessons learnt…if you can buy it right off, DO! If not, wait till you can :)